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Feb. 29 — A reservation of rights for the patent licensor's affiliates was not enough to defeat the licensee's attempts to sue an alleged infringer, but a substantial question as to the patent's validity means a preliminary injunction was improper, the U.S. Court of Appeals for the Federal Circuit ruled Feb. 29.

Luminara Worldwide LLC's predecessor had licensed several patents covering flameless candles, including U.S. Patent No. 8,696,166 from Disney Enterprises, Inc., which had developed the technology for use with rides in its theme parks. Luminara sued Liown Electronics Co. Ltd. for patent infringement after a partnership between the companies fell apart and Liown continued to manufacture its own flameless candles. The trial court granted a preliminary injunction against Liown, which appealed on the grounds that Luminara was not an exclusive licensee of the patent and because of questions as to the patent's validity.

The Federal Circuit vacated the preliminary injunction, finding substantial questions surrounding the validity of the patent.

However, the court first rejected Liown's argument that Luminara could not assert the patent because it was not the exclusive licensee. Liown said that the Disney-Luminara patent licensing agreement reserved for Disney the right to allow any affiliate “operated by or under the license” of Disney to use the patent. Disney, thus, could easily create new licensees, because “affiliates” are any entities that took a license out for the flameless candle technology, Liown asserted. This meant that Luminara did not have an exclusive license.

The Federal Circuit said this reading was improper. The plain reading of this language requires the license in question to relate to the operation of the affiliate company, not just to the patented technology, as Liown claimed. The licensing agreement gives Luminara the exclusive right to assert the patents, while retaining for Disney and its affiliates various rights such as the right to use the patents, title to them and a financial interest in litigation and licensing. These Disney-reserved rights, the Federal Circuit explained, do not preclude Luminara's exclusive right to sue alleged infringers.

The Federal Circuit, however, vacated the preliminary injunction due to substantial questions about the validity of the patent the injunction was based on. The district court had construed one of the patent's claim limitations—
that the flame reflector was “free to pivot”—to mean a chaotic rotation based on more than two axes, which would simulate the flicker of a flame. However, the Federal Circuit said that, as a preliminary matter, the plain language does not support a limitation requiring rotation on more than two axes. Because there is a prior art patent that teaches a flame reflector that rotates on a minimum of two axes, there is a substantial question as to the validity of the patent, making a preliminary injunction improper.

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